Gulfport Energy Corp. Downgraded To 'B+' On Weaker-Than-Expected Financial Measures; Outlook Stable

  • S&P Global Ratings lowered its Henry Hub natural gas price assumptions for the remainder of 2019, 2020, and 2021 to $2.25 per million British thermal units (mmBtu), $2.50 mmBtu, and $2.75 mmBtu, respectively.
  • As a result, Gulfport Energy Corp.'s expected EBITDA and cash flow levels will be lower than we previously anticipated.
  • We are downgrading Gulfport to 'B+' from 'BB-'. The unsecured notes remain 'BB-', supported by the company's strong reserves and resulting recovery expectation.
  • The stable outlook reflects our view that despite challenging natural gas prices and natural gas liquids prices, Gulfport will maintain adequate credit measures for the rating and adequate liquidity.
NEW YORK (S&P Global Ratings) Aug. 20, 2019—S&P Global Ratings today took the rating actions listed above. The downgrade on Gulfport Energy Corp. reflects weaker-than-anticipated financial measures due to the decline in Henry Hub natural gas price realizations, including the recent reduction in our price assumptions, weak natural gas liquids (NGL) pricing, and limited above-market hedges beyond 2019. In addition, we now anticipate lower production in 2020 because we believe the company will reduce capital spending in line with expected cash flows. Gulfport is well hedged for the remainder of 2019 but has minimal hedges in place for 2020 (15%-20% of expected natural gas production), which we think will limit production, as well as cash flow generation, at current strip pricing. Additionally, NGL prices remain weak and will further depress cash flow.
The stable outlook on Gulfport reflects our expectations that it will maintain a conservative financial policy while continuing to develop its SCOOP and Utica asset base. We expect the company to maintain FFO to debt greater than 20% and at least adequate liquidity.
We could lower the rating if we expect FFO to debt to average below 20% with no clear path to improvement. This would likely result from a period of lower commodity prices, in particular natural gas, that leads to a decline in profitability, or if management pursues a more aggressive spending plan or increases shareholder returns, resulting in weaker credit measures.
We could raise the rating if the company increases its proved developed reserves and production to levels more comparable with higher-rated peers or if FFO to debt approaches 45% while maintaining at least adequate liquidity. This would likely result from higher hydrocarbon prices and a reduction of the company's debt.
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